BofA warns Fed risks policy mistake with early rate cuts
* MSCI world index touches highest since Jan 2018
* Euro STOXX 600 hits highest since July 2015
* Investors undeterred by lack of news on trade
* Dollar stabilises
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Tom Wilson
LONDON, Nov 19 (Reuters) - World shares touched their
highest in nearly two years on Tuesday as investors maintained
bets that the United States and China can reach a deal to end
their damaging trade war.
The world's two largest economies are in talks on an initial
deal to end an 18-month trade dispute that has damaged supply
chains and upset global markets, with Washington due to impose a
new round of tariffs on Chinese goods from Dec. 15.
A lack of clear news on the progress of talks has not
deterred investors emboldened by a growing sense that risks of a
recession, a spectre through the year, have receded.
Looser monetary policy from major central banks like China
has also helped bolster expectations for equities.
The MSCI world equity index .MIWD00000PUS , which tracks
shares in 47 countries, gained 0.1% to touch its highest since
January last year.
European shares also moved up, with the broad Euro STOXX 600
.STOXX adding 0.4% to move to its highest since July 2015.
Indexes in Frankfurt .GDAXI and London .FTSE gained 0.4% and
0.5% respectively.
Wall Street futures ESc1 indicated a positive start, too,
adding 0.2%.
Investors said assumptions that an initial trade deal would
be reached had outweighed any creeping doubts on progress in
talks that stemmed from a lack of clear news, with a growing
sense of positive economic fundamentals ahead.
"Consensus is assuming that there will be a cyclical
upturn," Stéphane Barbier de la Serre, a strategist at Makor
Capital Markets. "It's like the market lowered its guard on the
big risk metrics -- and that has triggered a reweighting of
funds from bonds to equities."
Hopes that Beijing will deliver some economic stimulus in
addition to Monday's surprise cut to a closely watched lending
rate provided a boost to sentiment in Asian markets.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS rose 0.6%, with Shanghai blue chips .CSI300
gaining 1% and Hong Kong's Hang Seng .HSI up 1.4%.
On the trade front, CNBC had overnight reported the mood in
Beijing was pessimistic about prospects of sealing a trade
agreement with the United States, buffeting the dollar.
But signs that suggested growing detente between the sides
clouded the picture: a new extension granted by Washington to
let U.S. companies keep doing business with Chinese telecoms
giant Huawei suggested a possible olive branch. That lack of clarity did unnerve some investors.
"The longer we go on, the more concerns will arise. The
reality is the clock is ticking," said Michael McCarthy, chief
market strategist at brokerage CMC Markets in Sydney.
DOLLAR STABILISES
The listless mood in share markets was reflected by tepid
moves among major currencies.
The dollar stabilised against a broad basket of other
currencies on Tuesday after three consecutive days of losses,
with investors awaiting the release of the minutes of the U.S.
central bank meeting at end-October when policymakers had cut
interest rates.
The dollar index .DXY against six major currencies was
little changed at 97.807, close to a two-week low after
weakening 0.6% in the last three days.
"Trade headlines are dominating sentiment but in terms of
the key event risk, the release of the Fed minutes will be a big
one for market participants," said Morten Lund, a senior FX
strategist at Nordea.
The British pound GBP= settled at $1.2953 after hitting a
one-month high overnight as opinion polls showed Prime Minister
Boris Johnson's Conservative Party on course for victory at the
Dec. 12 election.
In commodities, crude futures LCOc1 fell, losing 0.2% to
$62.29 a barrel, with a combination of jitters over trade and
expectations of a rise in U.S. inventories jangling nerves.
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